Broken-wing call butterfly

Construction: read every leg

The strikes 95/100/107 create five- and seven-point wings. Premiums net to zero. At 100 the position earns 500 before costs. Above 107, intrinsic is 2×100−95−107=−2 points, a 200 loss. The left tail is zero before costs. Opening fees make that otherwise flat tail slightly negative.

Read the ticket before the graph

BUY means you own an option right; SELL means you accept a short-option obligation. Positive quantities are long and negative quantities are short in the calculation. Check quantity, call/put, strike, multiplier and expiry before netting premium.

All legs in this example share November 20, 2026 expiration. The entry observation is October 6, 2026, with fictional QLT at 100. These are independent illustrative premiums, not a current option chain or executable quotes. The terminal diagram assumes every leg and any shares are resolved at one common settlement price.

Before expiry: time and volatility

The asymmetric wings alter Delta, Gamma, Vega and Theta across spot. Moving protection farther away cheapens it while enlarging the adverse interval. A graph cropped around the attractive body conceals the key trade-off.

Manage the position deliberately

Compare the saved debit with the wider-wing loss. A rally through the body calls for reassessment if the thesis was a stall. Do not use 'costless' as a substitute for a risk calculation.

From opening cash to a settlement result

Read the opening instructions: buy 1 95 call at 7.00; sell 2 100 call at 4.20; buy 1 107 call at 1.40. Option opening cash is $0.00 received as a credit. A received credit is not earned profit while the obligation remains open.

Set the common settlement price to 112.00. Calls have intrinsic value max(S−K,0); puts have max(K−S,0). Subtract the opening premium from each intrinsic value, then multiply by signed quantity and the 100-unit multiplier. Shares contribute their price change from their own cost. The calculation popup shows every leg.

The combined result is $-200.00 before costs and $-202.60 after illustrative opening fees of $2.60. Exit fees, slippage, funding, dividends and taxes are not included. Opening fees are 0.65 per option contract, not a statement of any broker's pricing.

Maximum terminal profit is $500.00; maximum terminal loss magnitude is $200.00, before costs. Isolated zero-P/L settlement points in the model: 0, 95, 105; zero-P/L intervals are shown in the ticket data, not single isolated breakevens. Move the scenario slider across each strike and explain why the slope changes there. A strike is a contract threshold, not a prediction.

This terminal model is useful for comparing risk shapes, but actual American-style assignment, share delivery, forced liquidation or a failed multi-leg exit can produce a different path. A long protective leg is not an automatic instruction that a broker must exercise it when another leg is assigned.

Open the calculation without leaving this lesson

Check your understanding

Try the question before revealing its answer. These are reading checks, not trading certification or a site completion record.